Dr. Kiattisak Khamsi, Senior Analyst at SCB EIC, conducted an analysis on the impact of the drought crisis on the Thai economy. According to Dr. Kiattisak, many parts of Thailand have experienced the most severe drought in 41 years during the past eight months. The effects on the Thai economy in 2023 and 2024 will depend on three main factors: the current rainwater and water levels in dams, the severity of the drought situation, and the extent of the damage caused by the crisis.
Dr. Kiattisak highlighted that the rainfall in the first eight months of the year reached a 41-year low in several areas of the country. Additionally, the usable water in dams is lower than the 10-year average due to the accumulated rainfall during this drought crisis. In the central region, the amount of rain was 35% less than normal and less than in 2019, which was the year with the greatest drought. In terms of water in dams, there is cause for concern as levels are below average.
Dr. Kiattisak explained that the amount of rain during the remaining months of this year is crucial for Thailand, as the country typically receives 63.6% of its total annual rainfall between January and August, and the remaining 36.4% from September to December. However, the estimated data indicates that the rainfall will be less than usual for the rest of the year due to the El Niño and positive IOD phenomena. These phenomena cause abnormal rises in sea surface temperatures, leading to less rainfall in Thailand.
The two phenomena, El Niño and IOD, were used to evaluate the amount of rain in Thailand under three scenarios: basic, bad, and good cases. The basic case, which has the highest likelihood, suggests that the northern, central, and eastern regions of Thailand may face the most severe drought in 41 years. The accumulated rainfall in these regions is estimated to be less than in the past 41 years, with reductions of 26.8% in the northern region, 30% in the central region, and 21% in the eastern region.
Dr. Kiattisak emphasized that the impact of the drought will be gradual and different from the immediate impact of a flood disaster. The agricultural sector will be directly affected, causing damage to agricultural produce, increased prices for agricultural products, and reduced income for farmers. Moreover, other sectors connected to agriculture, such as industries relying on agricultural products, production factors, and export-import businesses, will also be indirectly affected.
The output of agricultural products affected by the drought in 2023 includes a significant decrease in cane sugar production, off-season rice, cassava, and second season rice. The estimated damage to the Thai economy in the basic case is approximately 68,668 million baht, with off-season rice being the most affected. The damage to agricultural production will primarily occur in 2024, reaching 49,065 million baht.
However, Dr. Kiattisak noted that there may be some compensation from increased agricultural product prices in 2024, leading to relatively stable farm income with only a 0.7% decrease. The agricultural production index is expected to decrease by 2.4% in 2024, while the agricultural product price index will increase by 2.3%. The number of agricultural households in Thailand is approximately 8 million, with a significant portion engaged in rice, sugar, cassava, rubber, and oil palm farming.
In summary, the drought crisis in Thailand will have an impact on the Thai economy, primarily through the agricultural sector. The effects will be felt gradually, and damage to agricultural production and income is expected in 2023 and 2024, with potential compensations from increased product prices. Other sectors connected to agriculture will also experience indirect effects from the drought.
Dr. Kiattisak Khamsi, Senior Analyst Siam Commercial Bank Economic and Business Research Center (SCB EIC)
Dr. Kiattisak Khamsi, Senior Analyst Economic and Business Research Center Siam Commercial Bank (SCB EIC) has analyzed the Thai economy in the midst of the drought crisis. At the briefing on September 13, 2023
Dr Kiattisak said that in the past 8 months, many areas in Thailand have experienced the most severe drought in 41 years, but how it will affect the Thai economy in 2023 and 2024 depends on 3 main factors : 1) the situation Rainwater and water in the dam at the moment 2) The severity of the drought situation 3) How much damage will the drought crisis cause to the Thai economy?
Dr Kiattisak said…
The rainfall during the first eight months of this year reached a 41 year low in many parts of the country. Meanwhile, the amount of usable water in dams across the country is at a lower level than the average of the last 10 years, given the accumulated rainfall in the year which experienced the greatest drought in 41 years (1981-2022) of to compare with the amount Rain accumulated in the first 8 months, with many areas of the country experiencing severe drought. In the central, northern and eastern regions
“In the central region, the first 8 months of this year The amount of rain is 35% less than normal and less than 2019, which was the year that experienced the greatest drought. The amount of rain is 29% less than the practice In terms of the amount of water in the dam, it is not less that causes concern,” said Dr. Kiattisak.
Volume of usable water in dams across the country At the start of the year, the volume of water in the dam was 33% higher than the 10-year average (2013-2022), but the situation in the dam continued to deteriorate. in August Onu dam usable water levels are below the 10 year average and at the beginning of September they were around 8% below average.
About the situation in the next period Dr Kiattisak said Depending on the amount of rain during the rest of the year, Thailand usually receives 63.6% of the rainfall between January and August to the total annual rainfall. and received 36.4% of rain from September to December. But from the estimated data, the amount of rain is likely to fall less than usual during the rest of this year. From the results of the El Niño phenomenon and the positive IOD phenomenon
“We will feel that the weather is unusually hot this year. This is not only from the temperature on the surface of the soil. But the temperature on the sea surface also rose abnormally. By the Pacific Sea temperature levels in the Pacific are different from normal. From April onwards, it began to increase steadily until May. The temperature was 0.5 degrees Celsius above normal, which meets the criteria for the El Niño phenomenon. In the next period, it is expected that the temperature will continue to rise. By the end of the year it will reach 2 degrees Celsius, meaning that there will be a very serious El Niño phenomenon. This will put pressure on the amount of rain that falls in Thailand,” said Dr Kiattisak.
In addition, in the Indian Ocean the temperature rose abnormally as well. Ocean surface temperatures were 0.4 degrees above normal in August and will likely continue to rise for the rest of the year. which meets the criteria for the occurrence of the Anode IOD phenomenon This will lead to drought in Thailand as well.
El Niño is a phenomenon of sea surface temperature in the equatorial ocean. The central and eastern Pacific rose abnormally.
IOD (Indian Ocean Dipole) Anode is a phenomenon where the difference in surface water temperature between the western and eastern areas of the Indian Ocean is unusually high.
Dr Kiattisak said of the two phenomena It was used to evaluate the amount of rain in Thailand in 3 cases: the basic case, the bad case, the good case, where the basic case has the greatest chance of happening.
Root cause: Northern region Mid and Eastern regions May face the most severe drought in 41 years, SCB EIC predicts accumulated rainfall in 2023 in the northern, central and eastern regions. It will be less than ever before in the last 41 years. In the northern region, the amount of water will be 26.8% less than in the last 41 years. In the central region, the amount of water will be 30% less than in the last 41 years, And in the eastern region, the amount of water will be 21% less than in the last 41 years.
About the impact on the Thai economy Dr Kiattisak said Gradually you will see the impact. This is different from a flood disaster where the impact is seen immediately. The drought will directly affect the Thai economy through the agricultural sector. and has an indirect effect through the connectivity of the agricultural sector with other sectors in the economy.
The direct impact on the agricultural sector will be damage to agricultural produce, an increase in agricultural produce prices, and farmers’ income. and consumer food costs increased Although indirect effects on other sectors of the economy include effects on industries that depend on agricultural products such as raw materials, such as sugar factories and rice mills, factors of agricultural production such as chemical fertilizers, agricultural machinery services, industries which produces products that rely on buying power from farmers such as motorbikes and home appliances. and the business of exporting agricultural products and importing factors of production
The agricultural product output that will decrease as a result of the drought in 2023 includes:
1) Cane sugar production will be greatly reduced by about 15.4 million tonnes compared to the absence of the drought. Because sugarcane is a plant that needs a lot of water.
2) Off-season rice will decrease by around 2.7 million tonnes. Off-season rice is a crop grown in dry rice fields and therefore depends on water stored in dams.
3) Cassava will decrease by about 2.1 million tons because it is a plant that does not need a lot of water.
4) A reduction of 1.2 million tonnes is expected in the rice this year. Most of the agriculture is already grown on low land. When there was a drought, it had little effect. And most of them are in the north-eastern region where the drought is not as severe as other regions.
As for the damage to the Thai economy in terms of value, in the basic case…
The drought crisis will cause a minimum damage of about 68,668 million baht to the Thai economy, with off-season rice having the highest damage value of 32,285 million baht, followed by sugarcane with 17,880 million baht, second season rice with 16,070 million baht, and cassava with 2,433 million baht.
Said Dr Kiattisak The damage to agricultural production in 2023 will not be very high, about 19,603 million baht, but the majority of the effects will occur in 2024, reaching 49,065 million baht.
In terms of farmers’ income in 2024, it is likely to be stable. o increase in agricultural product prices This will help to partially compensate for the impact of reduced production. However, it is likely that the income of farmers and sugarcane farmers will continue to expand. The agricultural production index is expected to decrease by 2.4% in 2024, but the agricultural product price index will increase by 2.3%, making it expected that farm income will be relatively stable, decreasing by only 0.7%.
There are a total of 8 million agricultural households. The number of farmer households that grow rice is 57% of the total agricultural households. The number of sugar farm households is 5% of the total agricultural households. The number of cassava farm households accounts for 9% of the total agricultural households. The number of rubber growing agricultural households: 21% per total agricultural households and the number of oil palm farming households is 5% per total agricultural households.
When separated by product Production indices for sugarcane, rice, cassava, rubber and palm fell, but the price level of rice and sugarcane increased by 8.1% and 12%, respectively, as a result of India’s agricultural export controls which causes product prices to increase.
Dr Kiattisak said The drought crisis causes Thai GDP this year and next year to decrease by a total of 0.5% and inflation to increase by a total of 0.6%, compared to the situation without the drought Thai GDP will decrease 0.14% pp in 2023 and decrease by 0.36% in 2024. Inflation will increase by 0.18% in 2023 and increase by 0.45% in 2024 because drought will cause the price of agricultural products to increase significantly, especially rice, sugar cane, and palm oil. And Thai consumers have a high proportion of food costs, about 35% of total expenditure, especially rice, which accounts for 10% of food costs.
“This year’s drought is therefore a concern. And it’s a risk that needs to be watched.” Dr Kiattisak said.
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